Expectations from equity?
When I ask people what they expect from their investments, their first answer is ‘profits’. So I now have to be more accurate in my questioning…
One of the questions is ‘What returns do you expect on a realistic basis from your investments?’
Obviously in nsc and ppf they know the answer…but when it comes to equity, the answers are amazingly WRONG…
Very few people ‘expect’ to get returns in the range of say 15%. Most people have expectations in the region of 20% to 40%.
Also the answer varies from time to time. Let us say in 2014 you have just seen the last 5 years SENSEX returns as follows: 80%, 10%, -10%, 7%, and 18%. …..
What should your expectation for the year ending March 2015 be?
The correct answer is : I DO NOT KNOW. Repeat, I DO NOT KNOW.
We tend to think that if we take an average over the past 5 years, we cannot be wrong. That is also not true at all. The gender of the person does not matter at all – women are as greedy as men, age does not matter – maybe older people need to earn it faster…not sure!
On an annualized basis the market is ALREADY UP by 11% from its 31st March figure. Assume it does NOTHING from now till the 31st March, EVEN then it has ALREADY given you returns far in excess of good quality debt instruments. Assuming it goes to 30,000 it means it would be up by about 30%+.
We just DO NOT KNOW WHAT will happen. However, in the next 5 years one of the years we will see ONE year of 80% or thereabouts. To get that you will have to be around and make sure that you stay during the whole journey, and not get excited and sell of half way through!!
Please have ‘reasonable expectations’ – the Japanese economy grew at 10% for 10 years, then at 5% for 10 years..and then at 2% for….
In the Indian context we have seen a great double digit growth over the past few years…however any expectation by the investor which is in excess of 13-14% p.a. for the next 10years is foolishness.
Of course if the ‘adviser’ tells you that it is possible to get more than 20% p.a., it is not just wrong, but almost a fraud! but hey he could be right too, occasionally!
Krish
Recently I have liquidated some FDs which are earning 9-10% and invested in the market. Reading your blog everyday, I kept my expectation of only 12-15% from the market. Infact, am saying to myself every day the same thing.
But then out of the sheer luck and right time coinciding with the election result, my equity return zoomed to 40% in a single month. This is way beyond my dream. I am confused whether to exit or not. I always wonder what investors must be doing with run up of more than 100% in a stock like Monsanto within 2 months or scores of stocks (eg. NTPC) which gave more than 50% returns in a month time.
I am confused about exit strategy and as I do not have enough experience in the market.
Karthikraja
Subra ji,
But without knowing return rate and no assurance of that “80%” in 5/7/10 years, Common man always choose to go Safe path. So Retail participation is very very mere though SEBI trying to get by demolishing DEMAT AMC charges and Sooper attractive Brokerage charges. Here and then, Corporate frauds also deter the common man getting into equity. How we can remove these Roadblocks? You have seen many Bull and bear runs, Please guide us.
subra
Krish – this is called beginners luck. Best is to take some money out of the market and put it back in an FD. HOWEVER THIS ADVICE IS NOT APPLICABLE TO ME – i regularly do such trades. One more thing u could do is pick one stock every year and build a portfolio. LET ME TELL YOU, it is NOT EASY.
subra
I still pay the HIGHEST brokerage rates. This is despite being offered FREE/ ZERO brokerage every day by brokers. I know the value that a broker adds to my life. Stay on in a low cost Index etf.
Aparna
I was investing in low cost etf and some good actively managed funds like top 200 since 2010-2011. I recently compared their returns using Pattu calculator. This comparison compares returns of the same investment pattern between 2 funds in your portfolio. I found that top 200 has outperformed etf by huge margin. I think patience is the key, I too had the temptations to switch to some other fund, but held huge part of it and sold only partially.
Satish Y
In the last one month, my direct equity portfolio increased 43%.
Initially i could not understand what to do. Whether to take some money out of market or just stay in the market.I took some money from direct equity and switched 1 lakh to PPF and invested remaining amount in diversified mutual fund for my daughter’s education.
Assumption: MF may have less downside risk than my direct equity. and with MF iam still in the market.